That's not really what's happening here. Tax obligations under the law are not clear cut. There's ambiguity. The law is often general in nature and old. It may not be clear how the law applies to a specific business.

A large business could seek out the opinion of ten different tax professionals and get a range of answers of how much tax the law requires them to pay. Even the IRS may not be certain. It's not unusual or unexpected that a business may have a disagreement with the IRS on how to interpret the law. If the taxpayer and the IRS can't come to an agreement, then the only way to resolve it is to take it to court and force a judge to make a call - the ruling then at least provides certainty to other businesses in the same situation.

For most people, their experience of paying tax as an individual has little relevance to the tax affairs of large businesses. Since there are millions of individuals, for any area of the law that's ambiguous, someone has already challenged the IRS and had the matter resolved in court, providing clarity for other individuals. This is not true for some businesses as there may only be a handful of other businesses (or even none at all) in a similar situation.

This situation isn’t as complicated as you make out. They tried to pay the (lower) long-term capital gain rate for trades with short-term gains. Individuals face the exact same holding requirement and can readily understand that the lower long-term rate is intended to incentivize buy-and-hold investing rather than intraday trading.

Except in this case they went too far and the IRS busted them - to the tune of $7B.

Let’s not pretend like they weren’t trying to get away with not paying their fair share of taxes here.

And to OP's point - if the punishment was in proportion to how much they tried to steal - well, you’d probably see a lot less “creativity” in these tax schemes.

Of course they were trying to minimize taxes, just like everyone else, individuals and corporations alike.

In this case it didn't work, but I don't see any parallels with stealing.

> In 2015, the IRS issued guidance here that hedge funds using "basket options" had to report them on their tax returns and correct past returns, which came after a U.S. Senate subcommittee reported some funds were using this to avoid federal taxes.

Tax rules are complicated, and these hedge funds are relying on technicalities to reduce their tax burden. This one didn't work out, but you can be sure their lawyers looked at the code and can say with a straight face that they didn't know how the IRS would rule. That doesn't make you a criminal. It also sounds like they're paying back the entire amount in question, not "a few percent."

Your figures are sort of backwards. The article claims they saved $6.8B in taxes and will owe $7.7B in fines.

They saved 6.8B seven years ago. If they put that money in broad market index, they already made the fine amount by now and then some.

The discount rate is usually based on a risk free asset. They could have put it in an index and ended up with a 30-40% decline in value as well.

The Renaissance group is pretty well known for exactly the opposite of that, however.

To clarify, the 7.7 billion figure is the 6.8 billion owed plus ~900 million in interest and fines.

Imagine you steal 500 bucks and if caught, the only punishment is to pay back 600 years later.

You'd have be almost certain of getting caught for it to not be a great idea.

Imagine you steal 500 bucks, invest it for 10 years turning it into 1000 dollars, and the punishment is to pay a fine of 700 dollars.

Basically, every ICO, only with much bigger numbers.

That's true, and a part of me wants the penalties to be much higher. On the other hand, people are already scared enough of IRS audits - penalties would make it so much worse.

That's basically an involuntary loan.

After some quick following, the fund had an 71.8% annual return from 1994 through mid 2014. I don't know how the numbers look like nowadays, but assuming that this continued throughout the time in question here, we can conclude that they made a lot of money through this

Id i understood correctly the teick they tried allowed them to treat short term gains as long term. Reducing their tax fron 35% to maybe 20%. So those 6.9 billion was 20% of their profits. Meaning the full amount of their profits were around 35 billion. That's crazy! A money printing machine.

The IRS can not only give you civil penalties like fines. They can also give you criminal penalties. They also have their own courts where you almost always lose.

It's time to tie alll Fees/Fines to 1040 income.

(Patent fees, DMV fees, judicial fines, municipal code citations, school tuition, and even property taxes, etc.)

Get ready to see a lot of poor people ignoring the law just as much as the white collar crowd does then.

A democratic society won't stand for the % of income that these fines and fees are to them being applied to everyone.

Have you missed all the articles about theft in San Francisco going nearly entirely unpunished?